Investment and sales growth rates slowed but remain healthy in November

19 December 2017

“While land purchased and new RE starts indicators performed relatively positive with YTD YoY growth rates accelerating, most other indicators have continued to record a slowing pace of growth as we approach the end of the year.” said James Macdonald, Director of China Research.

National real estate data for November 2017 was released on December 14, 2017.

YTD figures analysis

Real estate investment stood at RMB10 trillion in the first eleven months of 2017, up 7.5% year-on-year (YoY). Furthermore, total land sales increased 16.3% YoY, from 190 million sq m to 222 million sq m. At the same time, the total land sales consideration increased 47% to RMB1.14 trillion, indicating that the average price of land sold continued to grow, increased by 26.4% to RMB5,161 per sq m. New starts increased 6.9% YoY in the first eleven months, with 1.62 billion sq m currently under way.

The volume of space completed contracted in the first eleven months compared to a year ago, down 1.0% to 762 million sq m. There remains 7.68 billion sq m under construction, up from 7.45 billion sq m a year before. The volume of space sold increased to 1.47 billion sq m by November 2017, up from 1.36 billion sq m the previous year, while the average price paid increased 4.4% YoY to RMB7,879 per sq m. The combined effect of these two indicators means the total consideration paid increased 12.7% YoY, to RMB11.55 trillion.

Despite the restrictions found in many markets since late 2016 and the tighter credit environment, figures from the first eleven months remain relatively healthy. Floor space completed and sales volumes have slowed towards the end of the year. While average price paid for real estate in the first 11 months grew by just 4.4% YoY average, land prices increased 26.4%, the net impact being a squeezing of developer margins.

Outlook

There may be less demand from investors and home buyers in the future as the government looks to encourage the investment into the real economy, potentially through the equity markets, start-ups or other channels. At the same would be home buyers can look to the rental market as newer, better quality and managed product comes on line.

However, prices may continue to rise over the long run, home buyers will continue to demand a higher build quality from developers as well as management standards. As the developer market consolidates, better industry practices from the larger institutions will be rolled out to smaller tier cities, while regulators will find it easier to regulate a few hundred developers rather than 30,000 of them. As the government looks to improve its green credentials developers will be under the spotlight, being encouraged to use more sustainable, low carbon materials while constructing less energy consuming structures.